Walker Webcast: Economist Peter Linneman Says Economy is Stable

Despite persistent uncertainty surrounding inflation, gasoline prices and politics, economist Peter Linneman believes the U.S. economy remains on solid footing.

During the July 8 Walker Webcast, Linneman told host Willy Walker, Chairman and CEO of Walker & Dunlop, that the economy could be performing even better if businesses and consumers had greater confidence.

“Could the U.S. economy be doing better? Of course, if we didn’t have all this uncertainty,” Linneman said.

The Quick Growth of AI

Linneman also discussed the impact of artificial intelligence on employment, saying that he doesn’t see the technology eliminating a massive number of jobs.

He argued that technological innovation has historically created new industries and occupations while eliminating others. Instead, he said that workforce changes will happen gradually, rather than generating near-term widespread job losses.

But he worries that today’s AI investment boom could resemble previous periods of overinvestment, such as the housing bubble.

In fact, “I think AI actually is going to slow the economy over the next couple of years because we did too much too soon,” he said, adding that he believes what’s happening in AI is that “we’re investing about four years of what we should invest in two years.”

Lower Interest Rates Still Expected

Interest rates remain the ongoing key variable for commercial real estate.

Linneman said the Federal Reserve’s relatively restrictive policy remains appropriate, adding that inflation has largely returned to the Fed’s target when owners’ equivalent rent and volatile energy prices are excluded.

He backed off his previous prediction of a 75-basis-point decrease in the federal funds rate in 2026, saying the Fed will likely cut 50 bps by the end of the year. His reasons were that temporary inflationary pressures from oil price volatility should end, which could support lower interest rates.

Consumer Confidence Should Improve

Consumer confidence has remained unusually weak despite resilient economic performance and strong financial markets.

“Consumer confidence is fairly sensitive to inflation, in general, and it tends to be very sensitive to gasoline prices,” Linneman said.

Although there’s a great deal of discussion about gasoline prices, Linneman pointed out that they account for only a relatively small share of household spending.

He also pointed out that the Consumer Confidence Index lags by a month. “Last month, consumers started getting some relief from gas prices,” Linneman said, which could improve sentiment.

Multifamily Leads the Recovery

Within commercial real estate, Linneman expressed the greatest optimism for multifamily, where he believes market conditions are improving after several years of record deliveries. Demand remained positive throughout the downturn, but apartment deliveries consistently exceeded absorption.

“We never had negative absorption,” he said. “What we had was absorption that couldn’t keep pace with supply.”

With multifamily construction starts now down sharply across most markets, he predicted that supply-demand fundamentals will tighten. This, in turn, will support occupancy gains and generate higher rent growth over the next several years.

Office Will Be Selective

Linneman said office fundamentals should gradually improve as little new supply enters the pipeline.

Furthermore, potentially millions of square feet nationwide are being removed through demolitions and conversions, helping rebalance supply over time.

Overall, Linneman characterized the economy as stable rather than exceptional. While uncertainty continues to weigh on business and consumer sentiment, he argued that improving commercial real estate fundamentals, moderating inflation and lower interest rates should create a more favorable environment for the industry over the next several years.

On-demand replays of the July 8 Walker Webcast are available through the Walker Webcast channels on YouTube, Spotify and Apple. Subscribe to get invites, replays and articles for new Walker Webcast episodes every week.